Decomposition of the energy-intensity index with application for the Korean manufacturing industry

We present a method for decomposing industrial energy demand using the Divisia approach. This method involves decomposition of the aggregate energy-intensity index measured in terms of energy consumption per unit output. The factors considered are changes in production structure and sectoral energy intensities. The effect associated with sectoral energy intensities is further decomposed into those associated with fuel substitution and real energy intensities. We have applied the methodology to data of the Korean manufacturing industry. The results obtained show that increases in aggregate intensity for total energy consumption since 1988 are due primarily to the effect of increased real energy intensities. The contributions from structural changes and interfuel substitution were relatively small.